What's the Secret? E-Book

John R. DiJulius

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 448

Veröffentlichungsjahr: 2011

Beschreibung

What's the Secret? gives you an inside look at the world-class customer service strategies of some of today's best companies. You'll learn how companies like Disney, Nordstrom, and The Ritz-Carlton get 50,000 employees to deliver world-class customer service on a consistent basis- and how your company can too. Packed with insider knowledge and a wealth of proven best practices, author John DiJulius will show you how your company can emulate the world's best customer service providers.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

What’s the Secret?

What Is Secret Service and Why Is It Secret?

Secret Service Terminology

Acknowledgments

I - The Customer Service Crisis

Chapter 1 - The Smoking Gun

In Denial

Perception Is Reality

Customer Service and Its Impact on Sales

Irrefutable Evidence

Stone Ages

Service Vision—To Be the Most Customer-Centric Company in the World

Companies and the Customers Who Hate Them

Artificial Growth versus True Growth

Making Price Less Relevant

When the Brand’s Message Contradicts the Customer’s Experience

Customer Satisfaction Is a Fortune Teller

Conclusion

It Is Time to Either Get on, Get off, or Get Run over

Notes

Chapter 2 - The State of Service

The Customer Service Crisis

Return on Hassle

The Bar Has Been Set

Cracking the Code

The Customer Service Revolution

The Experience Formula

Get over It!

Customer Rage

Customer Service Is Not Just about People

It’s All about Service

Notes

Chapter 3 - World-Class Service Sins

Lack of Service Aptitude

Decline in People Skills

Inability to Connect Employees and Jobs to Success

Poor Hiring Standards

Lack of Ongoing Experiential Training

Not Letting Employees Have Input on Systems

Failure to Implement and Execute Consistently

Lack of a Strong Employee Culture

Lack of Measurements and Accountability

Focus on Artificial Growth

Service Blunder: An Example

World-Class in Action

Experiential Reports

Notes

Chapter 4 - Service Aptitude Level

What’s the Real Service Aptitude Level of Your Company?

Company Service Aptitude Test

Recommended Action Plan

Notes

II - The Customer Service Revolution

X Commandments for Providing a World-Class Customer Experience

Chapter 5 - Commandment I: Service Vision

Creating a Successful Service Vision

Disney’s Service Vision

How to Create a Service Vision

Creating a Service Brand Promise

How Inspirational Are Your Service Brand Promises?

Is It Expensive Coffee—or Inexpensive Rent?

What Is Your Company’s Priceless?

A Few of My Favorite “isms”

Personal Service Brand Promises

Marketing Your Service Vision

What We Do Today Impacts Our Customers’ Lives

Everyone Plays a Part in the Success of the Service Vision

Notes

Chapter 6 - Commandment II: Creating a World-Class Internal Culture

Why People Leave

Disney’s Approach to People Management

Build the Culture and the Customers Will Come

Notes

Chapter 7 - Commandment III: Nonnegotiable Experiential Standards

Experience Tax

Teacher Becomes the Student

The Six Components of a Customer’s Experience

Task Focused versus Customer Focused

Focusing More on What Drives Customer Satisfaction

World-Class Service Is Not Restricted to Upscale Businesses

Notes

Chapter 8 - Commandment IV: Secret Service Systems

Brief Review

Giving a Customer a Memorable Experience

If You Know It, Use It

Distinguish New from Returning Customers

Secret Service Lawyers

Guestology

Secret Service for Retailer

Whose Experience Is It?

Secret Service Case Study: The Melting Pot Restaurants

Peripheral Vision

Notes

Chapter 9 - Commandment V: Training to Provide a World-Class Customer Experience

Hard-To-Soft Training Ratio

Shadow Training Is a Shadow of What You Need

Customer Experience Promise

Systems and Processes That Remove Variation in the Customer’s Experience

Million Dollar Keynote Presentation

Only Companies That “Get it”—Want It

A Smile Is Rare Today

Notes

Chapter 10 - Commandment VI: Implementation and Execution

Consistency and Continuity

Guillotine Filtering System

Manage the Experience

Notes

Chapter 11 - Commandment VII: Zero Risk

Don’t Ask If You Don’t Want to Know

Fine or Okay Is Unacceptable

Management Service Recovery Training

How Accessible Are You?

Service Recovery Quiz

Silence Is Not Always Golden

Notes

Chapter 12 - Commandment VIII: Creating an Above-and-Beyond Culture

Creating Loyal Customers

Above and Beyond Is a Matter of Service Aptitude

The Answer’s Yes . . . What’s the Question?

Anticipating and Delivering on Your Customer’s Needs

Become a Storytelling Company

Train and Test for Above-and-Beyond Opportunities

Customer Service Revolution

Being a Daymaker

Notes

Chapter 13 - Commandment IX: Measuring Your Customer’s Experience

Don’t Try This at Home

Why Measure Customer Satisfaction?

The Enemy of “Great” Is “Good Enough”

Five Things Learned from Talking to 100 Million People

Measurement Can Prevent Costly Mistakes

Word of Mouth Is Much Louder Today

Service Recovery

Is Customer Engagement Overrated?

What Gets Measured Gets Managed

The Ultimate Question

Sport Clips

Closing Ratio

Can’t Be All Things to All People

Notes

Chapter 14 - Commandment X: World-Class Leadership

Guess Who

Habits of World-Class Leaders

Chief Visionary Officer

Secret Service at Home

Daily Journals

Blocking Off the Calendar

Index

Copyright © 2008 by John R. DiJulius III. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

DiJulius, John R., 1964 -

What’s the secret? : to providing a world-class customer experience /

John R. DiJulius.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-470-19612-0 (cloth)

1. Customer services. 2. Consumer satisfaction. 3. Customer loyalty. I. Title.

HF5415.5.D5583 2008

658.8’12—dc22

2008012004

To what matters most in the world to me— my family: Stacy my wife and my three sons (and best buddies), Johnni IV, Cal, and Bo.

Nothing would have been possible or worthwhile without your love and support.

Thank you for the honor to be known as your husband and father.

Preface

What’s the Secret?

• What’s the Secret to why good customer service is so hard to find today?

• What’s the Secret to why is it so hard to find employees who know how to deliver it?

• What ’s the Secret to why companies don’t train their people better?

• What’s the Secret to why companies don’t see the value in providing good customer service?

The next time you are with your professional peers and you overhear a conversation about Secret Service, do not immediately start sharing your knowledge of the CIA and the department responsible for protecting the president of the United States. Chances are that is not the Secret Service they are referring to.

Although sales for my previous book, Secret Service: Hidden Systems That Deliver Unforgettable Customer Service (AMACOM, 2003), have been remarkable, and hundreds of businesses across the world have implemented these systems, the term Secret Service still can be confusing to some.

Before you read this book, it is imperative you truly understand the meaning of Secret Service as it relates to helping your organization become a world-class customer service organization. Since the release of the book in 2003, the term Secret Service and what it represents has evolved and today, Secret Service is no longer just a book title or a term but a concept, a strategy that thousands of businesses incorporate as their value proposition, to differentiate themselves from their competitors and make superior customer service their point of difference.

Out of curiosity, I looked up the definition of the Secret Service that operates under the government:

Secret Service: Governmental service of a secret nature charged chiefly with the protection of the president, responsible for the collection, analysis, and appropriate dissemination of intelligence.

Absolutely nothing to do with my version of Secret Service, as it relates to customer service, right? Actually, by substituting just three words, it fits my meaning of Secret Service perfectly:

Secret Service: Customer service of a secret nature charged chiefly with the protection of the brand, responsible for the collection, analysis, and appropriate dissemination of customer intelligence.

What Is Secret Service and Why Is It Secret?

Secret Service uses hidden systems to deliver unforgettable customer service. These systems obtain customer intelligence and utilize it to personalize the customer’s experience, leaving the customer to ask themselves:

“How’d they do that?”

“How’d they know that?”

Secret Service employs behind-the-scenes systems that employees use to anticipate and deliver on the unexpressed needs of the customer, by using a system of silent cues, visual triggers, and visual aids.

Customer intelligence is customer data (i.e., buying habits, purchasing history, referrals, personal preferences, where they live, or work) that fuels secret service.

Secret Service systems allow the front-line employees, of your organization to consistently create a memorable experience through:

• Engaging the customer.

• Personalizing their experience.

• Remembering their preferences.

• Distinguishing between new, returning, and VIP customers.

• Anticipating and delivering on their unexpressed needs.

As a result of providing Secret Service, companies:

• Create stronger relationships with their customers.

• Build emotional capital and brand equity with their customers.

• Turn their customers into brand evangelists.

• Make price less relevant to their customers.

To effectively deliver Secret Service, your employees need to act as detectives by collecting customer intelligence and then using silent cues that alert their coworkers and allow them to personalize the customer’s experience.

It should be more obvious now why it is called Secret Service, it has:

• Hidden systems

• Customer intelligence

• Silent cues

• Visual triggers

• Detectives

After seeing a few examples of Secret Service actions, you will quickly realize why it can make your company a world-class (secret) service organization.

Secret Service systems should not add cost or complexity to your organization. Secret Service systems are what we call low-hanging fruit; they must meet the following criteria:

1. Low or no cost;

2. Simple to execute consistently; and

3. Make an immediate impact on the customer.

The following are simple examples of how easy, yet powerful Secret Service systems can allow companies to create memorable experiences:

• Distinguishing between new and returning customers: This Secret Service system identifies new from existing customers. For instance at John Robert’s Spa, returning customers are draped in black capes for haircuts, and new customers are draped in white capes. Every team member throughout the salon knows this fact and can address our guests accordingly. Thus, the color of the cape is the silent cue and visual trigger.

• Anticipating and delivering on customers’ unexpressed needs: A customer purchases a gift card for his spouse for Valentine’s Day and the receptionist pulls out several Valentine’s Day cards and offers him one to give with the gift card to save him a trip to another store.

• Personalizing the customer’s experience: In the restaurant industry, by simply asking the question, “What’s the occasion?” at the time of reservation, you can trigger a multitude of responses: We are celebrating a promotion, a graduation, an engagement, an anniversary, a reunion. When the customer arrives, the greeter presents him with a special-occasion greeting card and several employees congratulate the customer throughout their experience.

• Remembering their preferences: Another one of my favorite Secret Service systems is where a restaurant kept preprinted labels of their top VIP customers. Anytime they came in, their favorite bottle of wine would be waiting for them at their table, with a label on it that read: “From the Private Stock of Tom Smith.”

This book is more than a discussion of the problems and warm and fuzzy feel-good customer service stories. It contains the solutions, systems, and answers. It tells how the top customer service companies in the world execute world-class service consistently.

By executing Secret Service consistently, it is possible for your organization to make price irrelevant: Based on the experience they receive, customers feel your prices are an incredible value.

Secret Service is a strategy that thousands of businesses incorporate today as their value proposition, differentiating themselves from their competitors and making superior customer service their point of difference.

Because of the Secret Service systems we have put into place, we know our guest better than ever. What’s more, there is a greater sense of a “heroic cause” within our team. We are doing more than serving our guest; we are helping them enjoy life more in the company of people they care about.

—Bob Johnston, President, The Melting Pot Restaurants

We are all about Secret Service. Our clients think it is amazing what we deliver in our Haircut experience, but it is just a part of being a part of Sport Clips and following our system. Secret Service just validated much of what Gordon Logan and Sport Clips has been doing over the past 13 years and most importantly helped us take it to the next level by engaging our whole organization. John’s team was a great facilitator of this improvement process and Sport Clips is positioned to do even more in the years to come.

—Clete Brewer, President, Sport Clips

As Partner-in-Charge of client service at our firm, Secret Service is paramount. It is what allows us the opportunity to continue to serve our clients, build new relationships, and generate opportunities to assist new clients.

—Mike Trabert, Partner, Skoda Minotti

Secret Service Terminology

Above-and-Beyond Opportunities: Random acts of heroism providing legendary service to the customer.

Customer Experience Cycle (CEC): The traditional points of contact/interaction a customer will encounter when doing business with you.

Customer Intelligence: Customer data (i.e., buying habits, purchasing history, personal preferences).

Experiential Actions: A personal engaging experience delivered to the customer, by an employee that makes them say “WOW,” a delightful surprise that the majority of your competitors do not provide. It could be a standard or random (above and beyond) action. It is the reason why our customers return, refer others and become brand evangelists. Examples of experiential actions include using a customer’s name, remembering their preferences, or having their order ready before they placed it.

Nonnegotiable: Standards that team members absolutely must deliver, regardless of the circumstances.

Operational Actions: Actions that team members must execute to assist in the efficiency of the day-to-day transactions with our customers. Examples of operational actions include cleanliness, dress code, inventory, and lighting. They are unnoticeable to customers and are not the reason customers return.

Secret Service: Hidden systems that deliver unforgettable customer service.

Service Aptitude: A person’s ability to recognize opportunities to exceed customers’ expectations, regardless of the circumstances.

Service Defects: Obstacles and challenges that can occur at any stage of the CEC and that can ruin the customer’s experience.

Service Vision: The true underlying value of what your organization brings to your customers, that provides a meaningful purpose for your employees.

Stages: The individual contact/interaction points within the Customer Experience Cycle, such as a phone call, greeting, or checkout.

Zero Risk: A customer has no risk in doing business with your company because you have service recovery protocols. Regardless of any circumstances, in the end the customer knows your company will always make sure they are happy.

Acknowledgments

Many times, after you give so much toward something—more work, time, and energy than you originally thought—when you are finally done, it can feel a little anticlimatic. Not this time, I can easily say that there have not been too many projects in my life that required the amount of time, commitment, and sacrifice this book has. However, I am finally done, and it feels great. I have given this book everything I had and could not be more proud of the finished product.

What’s the Secret? has truly been a labor of love that has taken me over five years to complete. It is the culmination of many years of research, exploring, and working with the top world-class customer service companies. Like any great endeavor, I could not have done this alone. I was blessed to be surrounded by an incredible group of people who have inspired me, supported me, and most of all believed in me.

This book would not have been possible without my leadership team in both my organizations, The DiJulius Group and John Robert’s Spa. I am so blessed to have so many talented people who have dedicated their professional careers to my vision. People like my wife Stacy DiJulius, Artistic Director; Eric Hammond, Vice President of Operations; my brother Barry DiJulius, COO; my sister Kathy Cheyfitz, Director of Guest Care; and Denise Thompson, Chief Xperience Officer of The DiJulius Group, all lead my companies with so much passion that it has enabled me to focus on this book.

Thanks to all my team members at John Robert’s Spa and The DiJulius Group, who daily live up to the heavy burden of being a world-class customer service organization.

I would also like to thank Service Management Group in Kansas City, Missouri, especially Jack Mackey, Vice President of Sales and Marketing and Andy Fromm, President and CEO, for being so generous in sharing all their time, expertise, and research, which provided me with significant data to support my findings. Also, Darlene Campagna and her team at Direct Opinions in Cleveland, Ohio, that also provided me with key customer measurement research, as well as helping The DiJulius Group in the development of the Company Service Aptitude Test (C-SAT).

Thanks to all the great world-class companies that have repeatedly hired me and my team at The DiJulius Group to help them continue to raise the bar for service excellence. I have to admit, I benefited as well by learning their (organizations like The Ritz-Carlton, The Melting Pot Restaurants, Nemacolin Woodlands Resort, Starbucks, Cameron Mitchell Restaurants, The Cheesecake Factory, Panera Bread, Sport Clips, Charming Shoppes, Progressive Insurance, Chick-fil-A, Westfield Insurance, Service Management Group, Lexus, Nordstrom, Hallmark Cards, Breakers Hotel, and Goodyear Tire) best practices, which in turn allowed me to produce this masterpiece.

I want to thank Heather Thitoff, Director of Training at Cameron Mitchell Restaurants and Melissa Gottlieb, Vice President of Sales at Smart Business Network magazine. They both have been a great resource, supporters of Secret Service, and performed the punishing task of reading and critiquing early versions of this book.

A special thank you to my mentors, who have not only been so generous in sharing their brilliance, but are people I proudly call good friends. People like Verne Harnish, founder of Entrepreneur’s Organization, CEO of Gazelles, Inc., and author of Mastering the Rockefeller Habits; James Gilmore, coauthor of Authenticity; Hal Becker, author/speaker; Fredrick Holzberger, CEO of Fredric’s Corporation; and Charles Penzone, President of Charles Penzone Salons.

I also have to thank Matt Holt and his team at John Wiley & Sons who believed in this book.

Most of all, thanks to my family: my wife Stacy, and my sons Johnni, Cal, and Bo, who remained patient, supportive, and always believed in me.

I

The Customer Service Crisis

1

The Smoking Gun

Definitive proof of the return on investment in providing superior service

You can have a great product, but it takes world-class service to create brand loyalty.

Based on extensive research, interviews, and analysis of various businesses, The DiJulius Group has determined the following trends in levels of customer service:

LevelDescriptionCompanies (%)1Unacceptable122Below average293Average384Above average185World class3

According to this study, 41 percent of companies are operating at unacceptable (1) or below average (2) levels of customer service, while 38 percent of companies are delivering average customer service (3). If you total that up (1, 2, and 3) 79 percent of the companies provide a level of customer service which is average at best. Which leaves us having a good customer experience about one-fifth of the time (level 4) and we only have an exceptional experience with 3 percent of the companies we deal with (level 5).

You can say what you want about who you (think you) are, but people believe what they experience.

—Jack Mackey, Vice President, Service Management Group

In Denial

Think about your business, what level of customer service does your company deliver? Now, from a customer’s perspective, reconsider your answer. The sad truth is that the majority of businesses rank their customer service higher than their customers rank them. The following research reveals how much companies are in the dark about the level of service they are providing.

Bain & Company, a business consulting firm, surveyed customers of 362 companies and found:

• Only 8 percent of customers surveyed described their experience as superior.

• Yet, 80 percent of the companies surveyed believe that the service they provided was indeed superior.1

How can 80 percent of the companies think they are providing superior service, but only 8 percent of their customers agree with them? Who’s right? The customer!

These findings are very similar to those uncovered by The DiJulius Group. Thousands of companies have taken our Company Service Aptitude Test (C-SAT), which is a detailed, self-assessment survey that managers take to find out what level of customer service they deliver. The C-SAT has proven to be an accurate indicator of the company’s customer service level.

Prior to taking the test, participants are asked to rate their company.

Before beginning, please select which level you believe best describes your company’s customer service:

Level 1UnacceptableLevel 2Below AverageLevel 3AverageLevel 4Above AverageLevel 5World Class

In this pretest question, approximately 53 percent of participants rate the quality of their service at one to two levels higher than the level determined by the C-SAT. You can take the C-SAT by visiting www.thedijuliusgroup.com/SAT. It is also discussed in detail in Chapter 4, Levels of Customer Service.

Perception Is Reality

The majority of companies don’t realize the level of customer service they are delivering or that their own standards for good customer service are considerably lower than their customer’s standards.

Could They Be Us?

After I speak about how to improve customer service, several people line up to tell me their personal horror stories, offering me material for my next book. I constantly hear things like, “You wouldn’t believe how bad they treated me.” and “Listen to what they did.” This begs the question: If all of us agree and nod our heads at how bad they are at customer service, then who are the they? The answer is: They are us! We all can’t be the victims. We need to assess our own businesses and accept that there is a good chance we and our companies are contributing to the crisis in some way.

No one will argue that there is a customer service crisis and that the majority of businesses do not make customer service a priority in their hiring, training, or treatment of their customers. Why is that? The answer : Because providing excellent customer service is a lot of work. It means you have to have systems, processes, hiring standards, training, and service recovery protocols in place. It is much easier for an entrepreneur, who is very educated and skilled at his profession, to open a business, hire some people, and start operating. Many assume that providing customer service is common sense: Just take care of the customer. Most organizations make significant investment in customer service a very low priority and it is the first thing that is cut out of the budget when times get tough, not realizing the major impact it has on the bottom line.

Customer Service and Its Impact on Sales

Is an investment in customer service really worth it? How does the level of customer service a company delivers truly impact key drivers such as customer retention, sales, profit, cash flow, stock prices, employee turnover, and a company’s vulnerability to fluctuations in the economy and third-party conditions (i.e., gasoline prices, housing market).

Customer Satisfaction and Stock Prices

In an article from the American Management Association’s Journal of Marketing, January 2006, titled “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” author Claes Fornell asks the question, “Does an investment in customer satisfaction lead to excess returns?” The empirical evidence presented in the article suggests that the answer is yes !2 Let me repeat that:

The empirical evidence suggests that an investment in customer satisfaction does lead to high returns at low risk.

Claes Fornell, is the director of the American Customer Satisfaction Index (ACSI) and a professor at the Stephen M. Ross School of Business at the University of Michigan. ACSI is a leading indicator of consumer behavior, measuring the satisfaction of consumers across the U.S. economy. Extensive research proves that an increase or decrease in customer satisfaction, not only greatly impacts each individual organization, but has a significant impact on the future health of the economy.3

Equally amazing, the author’s findings suggest that satisfied customers are economic assets with high return and low risk. The study also proved that the leading ACSI companies consistently outperformed the market by considerable margins.4

It is conclusive that organizations that consistently deliver superior customer service generally enjoy more repeat business, less price elasticity, higher price points, more cross-selling opportunities, greater marketing efficiency, and a host of other factors that usually lead to earnings growth. These companies also enjoy lower expenditures related to warranties, complaints, defective goods, higher employee satisfaction, and market share. In addition, several research studies find that higher customer satisfaction has a positive impact on employee loyalty, cost competitiveness, profitable performance, and long-term growth.5

These findings are consistent with previous studies that revealed that companies with higher levels of customer satisfaction are more likely to enjoy higher levels of net cash flow. Similarly, superior customer service companies typically have lower costs of sales and marketing. Remarkably, a one-point improvement in a company’s ASCI score can result in as much as a 7 percent increase in cash flow.6

If good customer service translates into all the previously mentioned gains, such as repeat business, future revenue, increased market share, productivity, cost competitiveness, long-term growth, less customer defection, and lower employee turnover, it is logical that these factors will eventually affect stock prices and company valuations. And if that is the case, it would be difficult not to take seriously the notion of customer satisfaction as a real, intangible, economic asset.7

Irrefutable Evidence

Several studies compared the top ACSI companies against the market with regards to stock performance over six years, from 1997 to 2003, a period where the stock market had both ups and downs, to show the benefits of good customer service. The results were astonishing. While many businesses know the importance of providing consistent superior customer service, it is unlikely they realize how profound the benefits are. The top customer satisfaction companies (based on their ASCI scores) outperformed the Dow Jones by 93 percent, S&P 500 by 200 percent, and NASDAQ by 335 percent. The results conclusively show that customer satisfaction pays off in up-markets and down-markets. When the stock market dropped in value, the stock prices of companies with highly satisfied customers seemed to have benefited from some degree of insulation. Figures 1.1, 1.2, 1.3 show the cumulative returns over time.

A second study from a different time period, comparing the top ASCI companies versus the DJIA, S&P, and NASDAQ markets had similar results. The ASCI companies outperformed the markets each and every year. Figure 1.4 shows the five-year cumulative results.

No one can argue that these results are extraordinary. There are very few actions or strategies a business can implement, if any at all, that can produce comparable financial results. Firms that do better than their competition in terms of satisfying customers (as measured by ACSI) generate superior returns at lower systematic risk.8

To demonstrate the significance customer satisfaction has on the financial success of an organization, Figure 1.5 compares the companies with the top 50 percent ACSI scores versus the bottom 50 percent. The top 50 percent generated an average of $42 billion in shareholder wealth, while the bottom 50 percent created only $23 billion. One point of customer satisfaction translates into 3 percent of market value increase.9

FIGURE 1.1Top ACSI Companies versus Dow Jones (February 18, 1997, through May 21, 2003). From “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” by Claes Fornell, Sunil Mithas, Forrest V. Morgeson III, and M.S. Krishnan, 2006,Journal of Marketing,70 (January), 3-14. Reprinted with permission fromJournal of Marketingpublished by American Marketing Association.

FIGURE 1.2Top ACSI Companies versus S&P 500 (February 18, 1997, through May 21, 2003). From “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” by Claes Fornell, Sunil Mithas, Forrest V. Morgeson III, and M.S. Krishnan, 2006,Journal of Marketing,70 (January), 3-14. Reprinted with permission fromJournal of Marketingpublished by American Marketing Association.

In a study done by the Ken Blanchard Companies, 74 percent of companies declared their organizations were highly focused on customer service improvements. However, only 44 percent indicated that they had a formal process for achieving these desired results.10

Stone Ages

Most companies’ financial measurement methodologies for customer satisfaction are extremely misleading and too primitive to be useful. This won’t change unless shareholders, corporate boards, and investors put more pressure on companies to account for intangible assets more effectively. Customer satisfaction should be considered an economic asset on the balance sheet and every executive should know the correlation between the level of customer service their company provides and the bottom line.

FIGURE 1.3Top ACSI Companies versus NASDAQ (February 18, 1997, through May 21, 2003). From “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” by Claes Fornell, Sunil Mithas, Forrest V. Morgeson III, and M.S. Krishnan, 2006,Journal of Marketing,70 (January), 3-14. Reprinted with permission fromJournal of Marketingpublished by American Marketing Association.

But if customer service is that important, why is it not represented on profit and loss statements or balance sheets? There are line items for advertising, marketing, people development, entertainment, but usually nothing for customer service. Our financial reporting seems to be in the Dark Ages with regards to its omission of factors such as customer service and customer satisfaction. “It is often difficult to translate, accounting doesn’t help. Investment in customer service can’t be capitalized, nor does it show up as an asset. After all, an intangible, feel-good asset such as customer satisfaction can’t be captured on the balance sheet. So spending to improve customer service and customer retention is usually treated as a cost rather than an investment. The result is that those costs are recorded before the benefits of the investment are realized,” says Fornell.11

FIGURE 1.4Top ACSI Companies versus DJIA, S&P, and NASDAQ Markets (April 11, 2000, through December 31, 2004). From “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” by Claes Fornell, Sunil Mithas, Forrest V. Morgeson III, and M.S. Krishnan, 2006,Journal of Marketing,70 (January), 3-14. Reprinted with permission fromJournal of Marketingpublished by American Marketing Association.

Consider the case of Amazon.com. Their pursuit of a better customer experience has turned out to be exactly right. Amazon estimates they have 72 million active customers, who, in a single quarter, spend an average of $184 a year on the site, up from $150 the year before.

Amazon’s return customer business is proof that customer service pays off. With a customer retention rate that consistently hovers around 80 percent, their typical customer is worth about five purchases. By increasing their retention rate to 85 percent, the typical customer will average seven purchases. An increase of only two purchases, right? Well, multiply that additional two purchases by the average purchase price of each order and then by their 72 million users worldwide and it becomes a pretty significant increase. As Fornell points out, “Organizations need to figure a way to apply economic systems that link customer satisfaction to shareholder value.”

FIGURE 1.5Comparing the Top 50 Percent ACSI Firms versus Bottom 50 Percent in Shareholder Wealth. (From “High-Tech the Old-Fashioned Way: An Interview with Tom Siebel of Siebel Systems,” by Tom Siebel and Bronwyn Fryer, 2001,Harvard Business Review,March. Copyright 2001 by the Harvard Business School Publishing Corporation, all rights reserved. Reprinted with permission.)Note :ACSI and MVA data for 1999 base: 73 U.S. companies.

Service Vision—To Be the Most Customer-Centric Company in the World

In an article that appeared in the January 5, 2008, edition of the New York Times, business columnist Joe Nocera noted that Amazon’s stock continues to rise, in spite of Wall Street analysts’ predictions of the stocks demise due to its focus on such frills as putting customers first. Nocera talks about an incident a few days before Christmas, where he ordered a PlayStation, a $500 gift, through Amazon.com. After it was delivered, signed for by a neighbor, and left in the building’s lobby, the package disappeared. To Nocera’s surprise and delight, an Amazon customer service representative sent out a replacement unit, which arrived on Christmas Eve. Not only did Amazon not charge him for the replacement, but they didn’t even charge him for the shipping.12

So why were Wall Street analysts so wrong in predicting the demise of Amazon? Could it be these supposed stock prognosticators put too much emphasis on margins and short-term results and not enough emphasis on the customer service practices that help create a lasting company?13

In the article, Nocera went on to recall a recent interview with Jeffrey Bezos, Amazon’s founder and CEO, where he explained his “obsession” with customers: “I’m so obsessed with the drivers of the customer experience, I believe that the success we have had over the past 12 years has been driven exclusively by that customer experience. We are not great advertisers. So we start with customers, figure out what they want, and figure out how to get it to them.” Amazon has really had only one stated goal since it began: to be the most customer-centric company in the world.

It appears Amazon is succeeding. Millions of people instinctively go to Amazon when they want to buy something online because they have come to trust the company in a way they trust few other online entities. Amazon’s technology, its interface, and its one-click buying service are all incredibly easy to use. It offers suggestions for further products that actually appeal to its customers. Its Amazon Prime program—for a $79 annual fee you get two-day free shipping—is enormously popular. Unlike most e-commerce sites, when you have a problem, the customer service telephone number isn’t hard to find. Amazon is even willing to correct mistakes that it didn’t make.

All of this, however, comes at a price. Customer service isn’t cheap. Amazon has invested heavily in improving the customer experience. Take for instance, in just one year, Amazon spent over $600 million in shipping. Wall Street, however, has never placed much value in Mr. Bezos’s emphasis on customers. What he has viewed as money well spent toward building customer loyalty, many investors saw as giving away money that should have gone to the bottom line. “What makes their core business so compelling is that they are focused on everything the customer wants,” said Scott W. Devitt, who follows Amazon for Stifel Nicolaus & Company. “When you act in that manner, many times Wall Street doesn’t appreciate it.” What Wall Street wanted from Amazon is what it always wants: short-term results. Precisely what Dell tried to give investors when it scrimped on customer service and what eBay did when it heaped new costs on its most dedicated sellers. Eventually, these short-sighted decisions caught up with both companies.

There is simply no question that Mr. Bezos’s investment in his customers, and his focus on the long term, has paid off, even if he had to take some hits to the stock price along the way. Mr. Bezos has said, “If you did something good for one customer, they would tell 100 customers.”14

Companies and the Customers Who Hate Them

An article that appeared in the Harvard Business Review, June 2007 talks about how companies need to create less company-centric and more customer-centric policies.15 If customer satisfaction creates loyalty and loyalty produces profit, then why do so many companies infuriate their customers with contracts, hidden fees, fine print, and unnecessary penalties? The article’s authors, Gail McGovern and Youngme Moon suggest it is because companies have found that confused and ill-informed customers can be the most profitable.

Perfect examples of these companies are cell-phone carriers, banks, and credit card companies that profit from customers who fail to understand or follow the rules about minutes used, minimum balances, overdrafts, or payment deadlines. It has been estimated that 50 percent of U.S. cell-phone carriers’ income is derived from penalizing fees. These strategies may be profitable in the short term, but in today’s technology age, public sentiment spreads like wildfire, damaging a company’s reputation in blogs and company-specific hate sites.16

What many of these companies have in common is that, even though they appear to take their customers for granted, their customers have little choice but to deal with it. Want to change your cell-phone company? Be ready to pay a hefty penalty to break your contract. Want to dump your internet provider? That may be difficult when one provider monopolizes your area.

Standard customer turnover in the cell-phone industry is 25 percent a year, which is shocking, especially considering most have customers sign contracts. This heavy turnover increases the amount of money that needs to be spent to replace these customers through aggressive marketing and advertising. In 2005, the U.S. cell-phone service industry spent more than $6 billion on ads.17 Which begs the question, how much better would their customer retention and satisfaction be if they took half that $6 billion and put it toward customer service training of their call centers, technical support agents, and retail associates?

Welcome Virgin Mobile USA onto the scene, which entered the industry in 2002 with an unusual customer-focused strategy: a pay-as-you-go pricing plan with no hidden fees, no time of day restrictions, no contracts, and straightforward reasonable rates. With an advertising budget one tenth that of the larger players in the industry, Virgin Mobile USA, in only a few years, already had exceeded 5 million subscribers and a retention rate considerably higher than the industry average, even though its customers can leave at anytime without any penalty. They have a 90 percent customer satisfaction rating, with more than two-thirds of their customers reporting they would recommend Virgin Mobile to friends and family.18

The banking industry is not much better. Profits from American banks have increased so dramatically from consumer fees and overdraft penalties that Congress had to reintroduce the Consumer Overdraft Protection Fair Practices Act. When the customer service bar is low, that means there is a great opportunity for someone to come in and steal the market. And that is exactly what the online bank ING Direct has done, offering savings accounts with no fees, no tiered interest rates, and no minimums. ING Direct is now the fourth-largest thrift bank in the United States, adding 100,000 new customers per month, with total assets of more than $60 million.19

The Harvard Business Review article offers warning signs to recognize customer unfriendly practices in your company:

• Are your most profitable customers those who have the most reason to be dissatisfied with you?

• Do you have rules you want your customers to break because doing so generates profits?

• Do you make it hard for customers to understand or abide by your rules?

• Do you depend on contracts to prevent customers from defecting?

Deteriorating customer service is not only the customer’s issue. Eventually shareholders feel it the worst. For years Home Depot was known for having knowledgeable floor staff available to assist their customers and its stock price reached as high as $70. However, their customer satisfaction fell and their stock price followed by dropping to nearly half.20

Artificial Growth versus True Growth

Growing your business artificially may satisfy shareholders and investors short term, but it is rarely effective over the long term. Examples of artificial growth are mergers, acquisitions, price-cutting, and novelty marketing promotions. But, typically, none of that results in higher customer satisfaction, loyalty, repeat business, referrals, or sustainable growth. There is only one true growth, growth that occurs because customers love doing business with you and sing your praises to their network.21

“Mergers and acquisitions often lead to deteriorating customer satisfaction as companies reduce costs,” Fornell said. “This was the case for banks in the late 1990s when there was considerable merger activity. It remains to be seen if history will repeat itself, but the data suggest that the recent mergers are not contributing to improved customer satisfaction.”22

If repeat business is created through price discounts or other means that do not cause an upward shift in a company’s demand curve, the relationship with the customer will be weaker.23 Discounting comes with cost-cutting as well, and when lower resources meet an increase in demand that will ultimately reduce the value your customers perceive your company provides. Rarely can you reduce prices without reducing your resources—staffing, amenities, options—which all reduces the service you are able to provide your customers.

When customers experience inferior service, the need for discounting becomes even greater to offset the frustration level of doing business with an organization. Thus, repeat business produced by higher customer satisfaction will be more profitable in general than repeat business generated by price discounts.24

A large percentage of organizations today are built not to serve but to sell. The relentless pressure for cheaper product pricing that is applied to organizations today has expedited the globalization of labor, forced the issue of outsourcing, and destroyed otherwise healthy corporate cultures. Once this happens, organizations become vulnerable to any competitor that brings a lower price to the market. No loyalty exists when the nature of the relationship between the buyer and the seller is based on price and nothing more.25

In an article titled “The Death of Cost-Cutting” that appeared in Smart Business magazine, James Lane and Hersh Chaturvedi point out that CEOs are realizing that there is a different strategy to growing their business other than cutting costs wherever possible. Price drives profits and superior customer service experiences drive price. Their survey found that businesses achieving a premium price are four times likelier to be delivering a superior customer experience.26 A 5 percent increase in customer retention could yield 25 to 100 percent improvement in profits. Companies with the highest customer loyalty typically grow revenues at more than twice the rate of their competitors.27

Sustainable organizations have leaders who model a service-oriented culture that holds human beings in high regard and seeks opportunities to make a positive impact for all stakeholders.28 Too often when new competition enters the market with a less expensive service or product, many of the other players in the industry rush to cut their prices in fear of losing market share. In many cases when companies focus on creating a relationship and providing superior service, price becomes less relevant to their customers. Instead of dropping prices and hurting margins, organizations should consider increasing the value the customers are getting for their money.

Making Price Less Relevant

Since opening in 1993, John Robert’s Spa, a chain of upscale salons and spas in Cleveland, Ohio, focus has been on legendary customer service. We have won numerous awards for both service and growth, including being named one of the top 20 salons in America multiple times. Cleveland is not a big city like New York, Los Angeles, or Chicago where salons can demand high prices. The average woman’s haircut price in Cleveland is $24. John Robert’s Spa prices range from $45 to $110, depending on the service provider’s experience.

More than 90 percent of our competitors are less expensive, in some cases considerably so, yet we are one of the busiest salons in Ohio while spending virtually nothing on advertising. Even during a sluggish economy (2001-2007), when demand for anything considered discretionary or a luxury, such as spa services (higher priced haircuts, manicures, facials, massages, pedicures, etc.) would be greatly diminished, the spas thrived. John Robert’s Spa has enjoyed 15 consecutive years of revenue growth while steadily increasing prices by adding value to the services they provide. Instead of focusing on selling haircuts, John Robert’s Spa focuses on creating an experience for guests that provides them with not only the fashion expertise they seek, but more importantly, an escape from daily stress and much needed rejuvenation that our bodies and mind require today (see Chapter 5).

Companies spend millions creating and advertising their brands, yet the customer’s experience is what drives customer perception.

When the Brand’s Message Contradicts the Customer’s Experience

It is a fact that nearly every market leader across many industries has the highest satisfied customer base, and usually advertises the least. Yet most executives have a difficult time investing revenue in customer service and training. Leaders who rose through customer-facing functions, are more likely to act with reference to customer experience than those who have not. In contrast, executives who rose through finance, engineering, or manufacturing often regard managing customer experience as the responsibility of sales, marketing, or customer service.29 They will throw millions of dollars at marketing, advertising, and branding campaigns that promote a message that is contradictory to what the customer actually experiences. By investing 50 percent of your marketing budget into dramatically improving the level of your organization’s customer service, you will see a significantly greater return on investment (ROI) than you were getting on your marketing and advertising dollars. Your customer base will turn into an unpaid salesforce.

Costco wholesale club, a leader in their industry in customer satisfaction, has grown to over 45 million members despite spending little on advertising or marketing. Between 1994 and 2004 Chick-fil-A grew nearly 15 percent annually, in spite of the fact they had one of the lowest advertising expense percentages to revenue in their industry. Chick-fil-A sets the bar for customer satisfaction companies in the quick service restaurant industry.30

In the early 1990s, Enterprise Rent-A-Car was experiencing dramatic growth; “We were seriously compromising our commitment to customer service,” says CEO Andy Taylor. Enterprise has taken an aggressive strategy resurrecting their customer service. Enterprise’s investment in improving their customer service has certainly paid off. Author, Fred Reichheld cited Enterprise as a model of how to generate customer loyalty.31 “ I have to say that learning to measure and manage customer service was not easy. We only had a vague idea of how difficult it would be. Of course, we didn’t anticipate how great the rewards would be for our customers and our people. We were out of balance, with too much emphasis on the financial numbers and not enough on pleasing our customers. We have come a long way toward achieving a more consistent service performance,” says Taylor. As a result, Enterprise has gone from $76 million in sales in 1980 to over $7 billion in sales by 2007.

Gary Loveman, COO of Harrah’s Entertainment, doubled revenues and earnings by reinvigorating the company and institutionalizing a service culture. Loveman adjusted the compensation program for his general managers so that one-quarter of their bonuses depend on their customer satisfaction results. Every nonmanagement employee of the casino also receives a bonus if his or her property improved its customer service scores by 3 percent over the same period a year earlier. Harrah’s has created a service curriculum that every employee had to pass, otherwise they lose their jobs. “Market by market, where our profitability and revenues greatly exceed our relative market position, there’s no question but that the results are largely service driven,” says Loveman. In four years, during this service makeover, Harrah’s revenue grew by over 100 percent and equally as impressive, their employee turnover dropped nearly in half, from 45 percent in 1998 to 24 percent in 2001.32

Customer Satisfaction Is a Fortune Teller

The level of a company’s satisfaction can typically be an excellent forecaster of their future success. Author Joe Calloway sums it up best, “If you want to see how a company is doing now, look at their current sales; if you want to know how a company will perform in the future, look at their current customer satisfaction scores.”33 Every company measures performance by “comp sales,” or same store sales comparing current year to previous year. Rightfully so, it is one of the most important benchmarks of a company’s success in their market. Service Management Group, of Kansas City, who conducts over 28 million customer surveys a year, has discovered that businesses with higher customer satisfaction have higher comp sales growth. Having a loyal customer base drives topline growth. Figure 1.6 illustrates the effect customer satisfaction has on comp sales. Stores with the lowest “recommend scores” average comp store sales growth of 0.3 percent compared to those at the highest end of the range, which grow at an average of 4.0 percent.

FIGURE 1.6Loyalty Impact on Sales Growth (Service Management Client Data).Note:Higher intent-to-recommend scores correlate with higher same-store growth.

Customer satisfaction also has a huge impact on employee loyalty and turnover. Figure 1.7 shows the higher the employee turnover, the lower the customer service satisfaction levels.

A Harvard Business Review article titled Why Satisfied Customers Defect, explains that attempts to create a complete customer satisfaction in commodity industry will often raise the product or service out of the commodity category, for example, Starbucks.34

As pointed out in Authenticity (Harvard Business School Press, 2008):35

Starbucks earns several dollars for every cup of coffee, over and above the few cents the beans are worth, precisely because it has learned to stage a distinctive coffee drinking experience centered on the ambience of each place and the theatre of making each cup. Perhaps no other company in the world more earnestly and steadfastly seeks to render authenticity—resolutely shaping how consumers perceive it to be.

FIGURE 1.7Employee Turnover Impact on Customer Satisfaction (Service Management Group Client Data).Note:Higher employee turnover reduces customer satisfaction.

Conclusion

Business has never been tougher than it is today ... the only businesses that are surviving with long term sustainability are fanatical about differentiating themselves through the customer experience they deliver.

It Is Time to Either Get on, Get off, or Get Run over

There is conclusive proof that with the necessary investment to improve your company’s customer service an organization can incur the following benefits:

• Higher customer retention

• Higher customer satisfaction

• Increased sales

• Higher comp sales

• Higher profit

• Increased cash flow

• Higher stock prices

• More shareholder earnings and value

• Lower employee turnover

• Increase in future earnings

• Reduced risk

• Less affected by the fluctuations in the economy and third-party conditions

Notes

1 Bain & Company. “HBR Understanding Customer Experience” [Bain & Company Survey], February 2007.

2 Claes Fornell, “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” Journal of Marketing, January 2006.

3 See note 1.

4 See note 1.

5 See note 1.

6 See note 1.

7 See note 1.

8 See note 1.

9 See note 1.

10 Ken Blanchard, “Key to Customer Loyalty,” www.kenblanchard.com.

11 See note 2.

12 Joe Nocera, “Put Buyers First? What a Concept,” New York Times, January 5, 2008.

13 See note 12.

14 See note 12.

15 Gail McGovern and Youngme Moon, “Companies and the Customers Who Hate Them,” Harvard Business Review, June 2007.

16 See note 15.

17 See note 15.

18 See note 15.

19 See note 15.

20 Christopher Oster, “Customer Service Hall of Shame,” MSN Money, April 26, 2007 12:01 AM ET, http://articles.moneycentral.msn.com/SavingandDebt/Advice/TheCustomerServiceHallOfShame.aspx.age=2/.

21 Fred Reichheld, The Ultimate Question (Boston, MA: Harvard Business School Press, 2006).

22 See note 2.

23 See note 2.

24 University of Michigan News Service. http://www.ns.umich.edu/htdocs/releases/print.php?Releases/2005/Feb05/r021505.

25 Dan J. Sanders, Built to Serve (New York: McGraw-Hill, 2007).

26 James Lane and Hersh Chaturvedi, “The Death of Cost-Cutting,” Smart Business, April 2007.

27 See note 21.

28 See note 25.

29 Christopher Meyer and Andre Schwager, “Understanding Customer Experience,” Harvard Business Review, February 2007.

30 See note 21.

31 See note 21.

32 David O. Becker, “Gambling on Customers,” McKinsey Quarterly, no. 3, February 1, 2003.

33 See note 20.

34 Thomas O. Jones and W. Earl Sasser Jr., “ Why Customers Defect,” Harvard Business Review, November 1, 1995.

35 James H. Gilmore and B. Joseph Pine II, Authenticity (Boston, MA: Harvard Business School Press, 2007).